Name:

1 | Page
Amy Woodhouse

Unit Specification: Unit 3 – Personal and Business Finance

Method of assessment

Externally marked exam (80 marks – 2 hours)

Unit in brief

Learners study the purpose and importance of personal and business finance. They
will develop the skills and knowledge needed to understand, analyse and prepare
financial information.

Unit introduction

This unit includes aspects of both personal and business finance. Personal finance
involves the understanding of why money is important and how managing your
money can help prevent future financial difficulties. It is vital you understand the
financial decisions you will need to take throughout your life and how risk can affect
you and your choices. This unit will also give you an insight into where you can get
financial advice and support.

The business finance aspects of the unit introduce you to accounting terminology,
the purpose and importance of business accounts and the different sources of
finance available to businesses. Planning tools, such as cash flow forecasts and
break-even, will be prepared and analysed. Measuring the financial performance of a
business will require you to prepare and analyse statements of comprehensive
income and statements of financial position.

This unit will provide a foundation for a number of other finance and business units
and will help you to analyse profitability, liquidity and business efficiency. It will give
you the knowledge and understanding to manage your personal finances and will
give you a background to business finance and accounting as you progress to
employment or further training.

Summary of assessment

This unit is assessed by a written examination set by Pearson. The examination will
be two hours in length. The number of marks for the examination is 80. (Section A
contains questions on the personal finance unit content and approximately one-third

2 | Page
of the marks, and Section B contains questions on the business finance unit content
and approximately two-thirds of the marks).

Assessment outcomes

AO1 Demonstrate knowledge and understanding of business and personal finance

principles, concepts, key terms, functions and theories. Command words: describe,
explain, give, identify, outline Marks: ranges from 1 to 4 marks.

AO2 Apply knowledge and understanding of financial issues and accounting

processes to real-life business and personal scenarios Command words: analyse,
assess, calculate, describe, discuss, evaluate, explain Marks: ranges from 2 to 12
marks.

AO3 Analyses business and personal financial information and data, demonstrating
the ability to interpret the potential impact and outcome in context Command words:
analyse, assess, discuss, evaluate Marks: ranges from 6 to 12 marks.

AO4 Evaluate how financial information and data can be used, and interrelate, in
order to justify conclusions related to business and personal finance Command
words: analyse, assess, discuss, evaluate Marks: ranges from 6 to 12 marks.

3 | Page
 Learning Outcome A1 – Function & Role of Money

Activity 1 - What would the world be like without money?

What would the world be like without money?

A moneyless world operating on people swapping items, where people give and
receive freely instead of paying for things

How would you pay for things?

By exchanging items, trading

Could you save anything of value?

If it was a rare or unique material, it might be seen as something that is high in value

How would you know the value of assets you had?

Depending on the size and use of the item, whether or not its multifunctional

Activity 2 - What are the Functions of Money?

Unit of account

This refers to anything that allows the value of something to be expressed in an

understandable way, and in a way that allows the value of items to be compared

Means of exchange

Money allows goods and services to be traded without the need for a barter system.
You can easily buy your lunch or any item using money.

4 | Page
Legal tender

A Legally recognised form of payment that is backed by the government.

Justify which function of money is most important.

The means of exchange =Money allows goods and services to be traded without the
need for a barter system. You can easily buy your lunch or any item using money.
This is essential for everyday life proving that it is the most important function

Activity 3 - The Role of Money

Personal attitudes

personal attitudes towards risk and reward, borrowing, spending and saving

External influences & trends

external influences/trends and the financial-related effects

Life stages

life stages (childhood,adolescence, young adult, middle age, old age), key features
of each stage, financial needs and implications at each stage

Life events

life events can vary the personal life cycle from individual to individual

Interest rates

interest rates, cost of borrowing versus reward of saving

Explain where your personal attitude to money has come from

5 | Page
What your parents attitudes towards money were and how they would spend their
money and savings

If parents & guardians are the ones where financial education comes from, assess
the limitations this has and what can be done to improve financial education.

Depending on your parents' attitude towards money, they may teach you to save it or
others may teach you to spend all your earnings. If you were brought up in a
household where money wasn't a problem you will have a different attitude to
someone who has came from a household who has financially struggled

Activity 4 - Life Stages

Discussion. What are the wants of people at each stage of their life? & what are the
implications from that?

Your wants, needs and aspirations change throughout your life stages

At each stage, people tend to have different:

1. life events;
2. levels of income;
3. levels and patterns of spending;
4. amounts of savings and attitudes towards savings;
5. amounts of debt held and attitudes to debt;
6. family sizes and structures;
7. levels of education; and
8. attitudes to risk (and to the future)

Childhood = Parents or guardians pay for everything they need. Relatives may save
money for the child if they have any spare income

Adolescent =Income may include an allowance from parents or guardians and

earnings from a part-time job. If they leave home they will become responsible for
paying for their needs as well as their wants. Likely to save for aspirations such as
driving lessons in the future, maybe buying a car.

Young adult = When they leave home they will become responsible for paying for
their needs as well as their wants, e.g. rent, household bills, food and travel. They
may need to take out a loan to pay for further education or training. If they find a job
they will have earnings although these might be low. If not they will receive benefits.
May find it difficult to save.

Middle age = in late middle age, people may find they have paid off their debts and
their dependents have left home. They can save for old age. Career changes may

6 | Page
involve being made redundant and retraining for a different role. Early retirement
may be voluntary or because of poor health.

Old age = income may be the state pension and any other pension arrangements
they have made while working. They may supplement their income with a part-time
job. If their health is poor they may need to pay for a care home. People may buy a
life assurance policy to repay debts and pay money to their dependents when they
die. They may prepay for their funeral.

Life Stage Financial needs Implications

Childhood Limited needs
Reliant on parents
Purchases sweets & toys
Money from parents in the
form of pocket money.
Spent on non-essentials
May be encouraged to
save

Adolescence Want independence Still reliant mainly on

Less reliant on family money from parents
Start socialising away from May look for a job
home Get cash as gifts & save
for larger purchases

Young adult University / Early career Student loan

More independent
Buying cars, renting,
buying homes
Starting a family / getting
married
Car finance and borrowing
Job & mortgage
Eligible for credit cards

Middle age support family Paying a mortgage

Improve lifestyle Paying into a pension
Save for future High income & high
expenses

Old age Fewer dependants No mortgage payments

Fewer financial needs Income from pension not a
May downsize salary

7 | Page
Explain the financial needs of someone in the Childhood life stage

The financial needs of a child is very low

● Limited needs
● Reliant on parents
● Purchases sweets & toy

What are the implications of some at the old age stage of their life when it
comes to finances?

Living off a pension

Less bills to pay as they usually have paid off their mortgages

Activity 5 - Planning Expenditure and Personal Finances

In the table create a basic personal budget for a month and then answer the
questions below regarding your personal finances.

In (£) Out (£)

Wages 445 0
Travel 15 15
Eating out 0 50
pocket money 40 0
savings 100 0
Total

Explain the importance of having healthy finances

It will affect your credit score

What are the consequences of not planning expenditure and personal finance?

You may find yourself not being afford certain things and possibly be in debt

Activity 6 – Why Plan Expenditure?

Remain solvent

This means that you have the ability to meet your financial obligations. InPersonal
finance means that you can basically cover any costs you have.

8 | Page
Good credit rating

A credit rating is how trustworthy you are in terms of paying off any debts you have.
Planning expenditure well will mean that you are in control of your finances, pay off
any debts on time and are a safe person to lend money to therefore you will have a
good credit rating. This will help you borrow money more easily when you need it.

Avoid bankruptcy

Declaring bankruptcy means that you are unable to pay your debts. If you declare
bankruptcy your debts will be cleared but this has severe consequences for you
financially going forward. You will most likely lose any assets you have and it will be
extremely hard to borrow money again.

Manage money to fund purchases

If you are managing your finances well this will allow you to avoid borrowing as you
will be able to save instead of borrowing to fund purchases. For example if you are
disciplined with your finances you will be able to save for a holiday instead of
borrowing money to pay for the holiday and therefore not have to pay any interest.

Generate income and savings

Money you have saved from planning your finances can be put to work for you in the
form of investments to generate you further income. This will allow you to set
financial targets and goals and work towards them through good financial planning. If
you can generate an income from savings and investments this will help you counter
the effects of inflation

Provide insurance against loss or illness

By planning your expenses and having some set aside for unforeseen circumstances
then you are providing yourself with peace of mind that if you lose your job or
become seriously ill then you will have enough money to cover your expenses for a
period of time

Activity 7 – Benefits and risks of not managing money

9 | Page
Using the benefits and risks evaluate the importance of managing personal
finances.

Financial management involves creating a budget, choosing a bank, paying taxes,

managing debt, investing, retirement planning, and estate planning.

Activity 8 – Knowledge Check A1

List the four functions of money

1. Unit of account
2. Means of exchange
3. Store of value
4. Legal Tender

Describe unit of account

This refers to anything that allows the value of something to be expressed in an

understandable way, and in a way that allows the value of items to be compared.

Describe 3 roles of money

● Culture

Your religious beliefs or ethical principals may shape the role that money plays in
your life and how you view and use it. For example there are certain banks that
follow religious rules in terms of lending and borrowing money.

● Life events

The importance of money may change depending on certain life events.For instance
when you first buy a home, the role money plays in your lifemay now be more
important. If you are made redundant then this also will impact your view of money.

● External influences

The state of the economy and the jobs market may mean that money plays a bigger
or less valuable part of your life. These external influences are out of your control but
still impact the role money plays.

10 | Page
Explain the financial needs & implications of someone at the middle age stage

In late middle age, people may find they have paid off their debts and their
dependents have left home. They can save for oldage.Career changes may involve
being made redundant and retraining for a different role.Early retirement may be
voluntary or because of poor health.

Outline 2 common principles when planning personal finance.

1. to avoid getting into debt

2. to control costs

Learning Outcome A2 – Different ways to Pay

Activity 9 - How do you pay for Goods and Services?

List as many methods of payment as you can

● cash
● credit
● debit
● cheque
● contactless
● mobile banking

Which one do you use the most and why?

I use contactless payment the most as it is quick and efficient.

Explain what makes something an effective payment method.

Activity 11 – Methods of Payment

If you have finished the word search for the methods of payment, then start filling in
the explanations of each payment method in the table.

Payment Method Explanation Advantages Disadvantages

Cash Easy to budget Easily lost

11 | Page
 Physical notes and Physical not digital Easy to steal
coins. Widely accepted Cannot be used
Available in a Confidence online
variety of amounts No good for large
amounts

Credit you have a certain Period of interest Interest charged if

limit that you can free credit not paid in full
use, you don't Widely accepted Encourage
have to make that Protection online overspending and
payment for 30 Used online debt
days Loyalty schemes / Charges on cash
cash back withdrawals
Set amount of
credit

Debit A debit card is a Secure May have minimum

payment card Low risk of theft spend limits
that deducts Widely accepted May overspend on
money directly Can be used online card
from a customers Widely accepted Potential to go into
current account to an overdraft
pay for a
purchase. Debit
cards eliminate the
need to carry
cash.

Cheque A written order to a Safe Cheques may

bank to pay a Good for large bounce
stated amount transactions Time delay
from an Good for postal between writing
individuals account transactions cheque and it being
to another. No need to carry cleared
large amounts of Places are phasing
cash out this payment
method
Error made easily
when writing

Contactless Allows money to Very popular Limited amount of

be transferred by Quick daily transactions
touching the card Safe Can only be used
on a contactless for small amounts
terminal. Not available
everywhere

12 | Page
Mobile banking Carrying out Convenient Limited features
financial Secure compared to
transactions using 24/7 internet banking
a mobile device and banking in
such as a mobile branch
phone or tablet.

Direct debit Direct Debit is an Quick & easy Needs monitoring

instruction from Convenient for to ensure correct
you to your bank paying bills amounts are being
or building society. Amount can vary collected
It authorises the depending on what
organisation you the vendor
want to pay to requests
collect varying Good way to stay
amounts from your on top of bills
account – but only
if you’ve been
given advance
notice of the
amounts and
dates of collection.

Standing order A standing order is Same amount is Payments are

a way of setting up paid each time taken regardless of
a regular, fixed Easy for budgeting customers bank
payment from your Easy to set up & balance which may
bank account. cancel result in being
You can set a Provides piece of overdrawn
payment to be mind in terms of Payments will
taken at a certain missing any continue until
frequency (for payments. cancelled
example, the 1st of
each month) and
for a set amount of
time, such as six
months. Your
payments will
consist of money
set at an amount
chosen by you.

Electronic transfer Payment being Fast method of Could transfer to

electronically from payment the wrong person
one bank account Free Risk of loss if
to another without Easy to do incorrect
13 | Page
 any paper money Payment is No appropriate for
changing hands. recorded purchases in
One of the most person
widely used
examples of this is
electronic transfer
of wages from an
employer to an
employee's bank
account.

Prepaid card A plastic Avoids May cost money to

alternative to overspending set up
carrying money If lost can not be No protection if lost
around and are overdrawn
often called Good way of
everyday cards. controlling
You load them with spending
money when you
first buy them and
top them up when
they run out.

Charge card Are like credit Get a short period Full payment
cards in that you of credit required each
buy something No need to carry month
now and pay for it cash Annual fixed fee
later, but the big Additional perks
difference is that
you have to pay it
off in full every
month. Whereas a
credit card has a
minimum payment
option.

Store card Issued by retail Short period of Can only be used

outlets so that interest free credit in specified
customers can Special offers and stores/places
purchase their promotions for that Interest is charged
products on credit. store on balances
It is basically a Can encourage
credit card but can debt on consumer
only be used in the goods

14 | Page
 store where it was
issued.

BACS This is an Guarantees instant Limited amount in a

electronic system payment within 2 single transaction
to make payments hours Service not offered
directly from one No additional costs by all banks
bank account to Used in branch,
another. They’re phone or online
mainly used for
Direct Debits and
direct credits from
organisations. The
payments take 3
working days to
clear, so money
paid into your
account on
Monday will clear
on Wednesday.

CHAPS These are No limit on the Fixed charge for

payments to UK amount in a single the transaction
accounts that are transaction
guaranteed to Same day transfer
arrive on the day
you make them, as
long as you set up
the payment in
branch, by phone
(Business
customers only)
before 3.30pm or
online before 5pm.

Activity 12 – Payment Advantages & Disadvantages

Go back to the table and write down the advantages and disadvantages of as many
of the payment methods as possible.

Activity 13 – Knowledge Check A2

15 | Page
Explain the difference between a debit card and a credit card

Credit cards are debt instruments. Debit cards are not.

Unless a checking account comes with an overdraft, debit card users can only spend
the money available in their bank account.

Explain the benefits of using BACS as a method of payment

Guarantees instant payment within 2 hours

No additional costs

Used in branch, phone or online

Assess the benefits & drawbacks of using cash to pay for goods and services

● Easy to budget
● Physical not digital
● Widely accepted
● Easily lost
● Easy to steal
● Cannot be used online
● No good for large amounts

Evaluate store cards as a method of payment

Issued by retail outlets so that customers can purchase their products on credit. It is
basically a credit card but can only be used in the store where it was issued.

● Short period of interest free credit

● Special offers and promotions for that store
● Can only be used in specified stores/places
● Interest is charged on balances
● Can encourage debt on consumer goods

Scenario

Jason goes on holiday next week and cannot decide what payment method to use
whilst on holiday. He has £1000 in spending money.

Argue whether he should use cash, debit card or credit card to pay for goods and
services whilst on holiday.

16 | Page
Could you answer these questions if different methods of payment came up?

Learning Outcome A3 – Current Accounts

Activity 14 - What are Current Accounts?

Research and explain what a current account is and the common features that are
part of a current account.

A current account is a type of bank account that keeps your money secure and helps
you manage your finances.

Current accounts facilitate the making of payments (direct debits, standing orders)
and they let people, businesses and organisations pay you easily.

While you may use other money products, it’s your current account that joins the
dots and enables our financial ecosystem to exist.

Activity 15 - Video Activity on Current Accounts

Along with an explanation of the accounts provide pros and cons of those accounts.

Current Accounts Video Link

Standard
The most common account, it has
standard features as you can pay in
and withdraw money. You will receive
a debit card, be able to pay for things
online and set up a prearranged
overdraft.
Premium/Packaged
This account has a monthly fee in
return for additional benefits such as
breakdown cover, cashback on
purchases, home insurance and
payment protection. These may not
always be value for money.

Basic
This current account is mainly used
by people who have a poor credit
rating and struggle to open a standard
account. It has limited facilities and no
overdraft available.
Student
An account designed to benefit
students. Especially useful for
students attending university as they
provide interest free overdrafts, rail
cards and discounts off eating out.

17 | Page
 Activity 16 - Current Accounts and Scenarios
Read the information provided regarding a variety of accounts. Then for each
scenario provide a justified recommendation of which account would be most
appropriate for each scenario.

Scenario 1

Misha has a well-paying career, husband and 2 teenage children. They enjoy going
on holiday abroad twice a year, have two cars and eat out often.

Assess the three accounts and justify which one would be suitable for Misha.

platinum because she can get travel insurance, as she enjoys travelling with her
family so it would be most beneficial for her

Scenario 2

Murray has a full-time job and lives alone. He is a part time student studying for a
university degree. He travels to university once a week by train and very rarely eats
out. His finances are good and has paid for his university fees with a student loan.

Assess the three accounts and justify which one would be most appropriate for
Murray.

classic account, this works well for him to manage his finances.

Scenario 3

Kara is a full-time student and lives in student halls. She has no income except
for £200 a month from parents. She enjoys socialising and has a lot of friends
at university.

Assess the three accounts and justify which one would be most appropriate for Kara.

a student account because this works well for her financial position purposely
created for students.

18 | Page
 Activity 17 - Exam question
Yasmin has just started university and is living away from home. She needs to open
a current account so she can pay in her student loan. She is also looking for a
part-time job and will need to have her wages paid into the current account each
month. Her parents are worried that she might get herself into debt if she has a large
overdraft. However, Yasmin will need books for her course and wants to make new
friends through socialising and eating out.

Accounts available:

Account Interest paid Overdraft Conditions Perks

on credit
123 Student None £1000 year 1 Must pay in £50 a Bose headphones
£3000 year 2 month Laptop
£4000 year 3 Rail card
Student 1% Up to £2000 a Online only Food card
Smart year Breakdown cover
Student 1% up to £500 £1500 Must pay in £250 Food card
Wise 2% up to £1500 maximum Book club discount
3% £1500+ Rail card
UniWise None £4000 None Laptop when
maximum signing up
Rail card

Evaluate the different current accounts available to Yasmin and recommend which
type of current account would be best for her to open.

student wise is the best option for her as it has all the perks she wants and needs

Activity 18 – Knowledge Check A3

List the 4 types of current account

Describe who a basic current account would be suitable for

Outline 2 features of a premium/package current account

Explain the key features of a student current account stating why these are
useful for students

Learning Outcome A4 – Managing Personal Finances

19 | Page
 Activity 19 – Borrowing
Before we discuss the types of borrowing available. We need to see how you
feel about borrowing money.

It is a good concept but it isn't always realistic, emergencies

happen and you need to take out a loan to keep a roof over your
head.

beneficial for when you're young and do not have responsibilities

but adulthood isn't always smooth.

List the types of borrowing available

1. Overdraft
2. Personal loans
3. Hire purchase
4. Mortgages
5. Credit cards
6. Payday loans

Overdraft

An overdraft lets you borrow extra money through your current account. For
Example, if you have no money left in your account and you spend £30, your
balance would be -£30. This means you’re using an overdraft. An Arranged
Overdraft could help you manage your money if you have to cover short-term
expenses such as an unexpected bill.

Personal Loan

Allows you to borrow money for a specific purpose such as improving your home or
buying a car. They are a longer term form of borrowing for higher priced items

Hire purchase

A hire purchase is an arrangement where a customer agrees to a contract to buy an

asset by paying off the amount in regular instalments. The buyer pays the balance of

20 | Page
the price of the asset plus interest over a period of time.The item remains the
property of the seller until all payments have been made

Mortgage

This is a long term loan for example paid back over 30 years. The Loan is secured
against an asset such as a house.

Credit card

A credit card is a type of loan, where the money you spend is actually borrowed from
the card provider. Instead of getting money in your bank account you get credit on
your credit card. Your lender will set you a credit limit, and you’ll be able to spend as
much of it as you need before paying back some or all of your balance each month.

Payday loan

A short term source of finance that is available over a very short period of time with
very high amounts of interest. Used usually in an emergency in between paydays
hence the term ‘payday loan’

Activity 21 - Provide Pros and Cons of Borrowing Options.

Imagine you are working for a bank and you have been asked by your manager to
create a guide to different types of borrowing available at the bank.

21 | Page
 Activity 22 - Case Study on Payday Loans and Questions
Link -
https://www.thisismoney.co.uk/money/cardsloans/article-6232745/I-borrowed-100-night-payday-lo
an-sharks-ended-owing-19-000.html

Just when you thought you had read it all about payday loan sharks... 'I
borrowed £100 for a night out and ended up owing £19,000'

Danny Cheetham got into debt after taking out a number of payday loans

Even though he was in financial difficult, firms kept loaning him money

22 | Page
Many payday loan companies use tactics to encourage you to borrow from
them.

He was a 19-year-old student at Salford University at

the time and paying back £128 after 22 days didn’t
sound like a bad deal.

But as soon as he cleared the first loan, the

now-defunct Wonga offered him another. This time,
he could have £420 for 38 days.

But when the time came to repay £585, an

unexpected bill meant he didn’t have the money.

So, he went to another high-cost short-term lender to

borrow £275. This grew into £538 with interest.

Over a decade, things began to spiral, with Danny

bouncing between payday lenders, borrowing hundreds at a time to pay off the firms
chasing him.

High-cost loans were transferred to his bank accounts within minutes following a
text. Loans were approved despite Danny’s overwhelming debts.

Towards the end of last year, he was offered three separate loans totalling £1,240
before he had paid off the first.

In total, he thinks he has paid almost £19,000 in interest to payday lenders.

Danny, who had kept the mounting debts a secret from his family and friends, says:
‘It’s shocking how easy companies made it for me to borrow more. I was in trouble
and thought these loans would ease the stress. But it never went to plan.’

Danny, now 29, has his debts under control and is set to be clear of them by the time
he is 30.

But experts say his story highlights just how easy payday loan firms make it for
people to rack up expensive debt.

And while Wonga is no more, there are dozens of other firms popping up in its place
with even more ruthless tactics.

Some promise to put money in your account in as little as 90 seconds. Others allow
borrowers to extend their loan just by sending a text message.

23 | Page
Some offer bonuses if you refer a friend and pay cashback if you borrow more.
Another says it monitors customers' bank balances and automatically tops up their
account if it falls below a certain amount.

Experts say that adverts

targeting families and young
people are normalising what
is a very costly way to borrow
money.

Some firms claim to be an

‘alternative’ to payday loans
when, in fact, they work in
much the same way.

Stella Creasy, Labour MP for

Walthamstow, said: ‘High-cost
credit companies hook people into a spiral of debt. Rather than treat people fairly
and mend their ways, those same companies which offered eye-watering rates of
interest are now simply changing the label on their loans.’

Lending Stream, which was set up in 2008, claims to be a responsible provider of

alternatives to payday loans.

The firm, based in north London, says it can send money to your account in 90
seconds and will allow customers to take out multiple loans at a time.

New customers can borrow up to £800, while those returning can get loans of up to
£1,500 over six months. Standard interest rates are 1,333 per cent but can be as
much as 1,721 per cent.

Someone borrowing £200 over six months, for example, would have to pay back
more than £386 including £186 in interest.

Another short-term lender, Oakam, also based in north London, offers borrowers
points for referring friends and for making repayments, which can be turned into cash
or vouchers.

You will also be paid £1 for every friend you invite to take out a loan through Oakam
(up to five a week).

If they apply for a loan, you will get a further £3, plus £10 if they are approved.

The firm, set up in 2006, even rewards you with points for downloading and signing
up for its mobile app.

But it charges up to 1,421 per cent interest on loans. So, if you were to borrow £800
over six months, you’d pay back £1,502.

24 | Page
Debt charity Stepchange says
it is concerned that any
incentives encouraging taking
out credit could distract from
the important things such as
rates.

Launched in 2012, Safety Net

Credit claims to be cheaper
than an overdraft. 

Customers are required to give the firm their sort code, account number, debit card
details as well as internet banking passwords, so it can have access to their bank
account. You set a balance level and when it falls below this, the firm automatically
tops it up.

When you have enough funds, it helps itself to a repayment. Safety Net Credit
charges 80p a day per £100 borrowed.

Interest is 68.7 percent. So, £500 borrowed for a week would cost £28 in interest.
The same overdraft would cost 70p with First Direct.

Ferratum, which was founded in Helsinki and has been operating in the UK since
2011, allows customers to apply for loans of between £50 and £1,000 by text
message which can be approved within an hour. Interest is typically charged at 1,270
pc.

A spokesman for the Financial Conduct Authority (FCA) says: ‘Where we see
breaches of our rules, we have a range of powers we can use to ensure people are
being treated fairly and stop further harm. We welcome intelligence of firms failing to
comply with our requirements and we assess all evidence we receive.’

A spokesman for Safety Net Credit says it offers a cheaper alternative to overdrafts
and makes affordability checks. If the credit line becomes hard to manage it says it
will work to resolve the situation.

Frederic Nze, founder of Oakam, says the firm was set up to help those with
damaged credit histories gain access to funds and build better credit.’

Lending Stream says it makes detailed affordability checks. Ferratum did not
respond to requests for comment.

Case Study Questions

1. Why did Danny borrow from a payday lender?

to borrow some money for a night out

25 | Page
 2. What percentage did he have to pay back on top of his initial £100 loan?

28%

3. Explain whether you think it is difficult to get approved for a payday loan

no it is very simple and only takes 90 seconds

4. Over a decade how much has Danny paid back in interest?

£19,000

5. How long can it take to get approved for a loan via text?

90 seconds

6. What tactics are payday lenders using to gain more customers and get
existing customers to borrow more?

extension of loans and referring to a friend gives you cashback

7. Generally, Credit cards have an interest rate of around 19%. What are the
standard interest rates for the firm Lending Stream?

1,333%

8. If you borrowed £800 from Oakam how much would you have to pay back
over 6 months?

£1502

Evaluate the pros and cons of using Payday loans as a form of borrowing

Pros Cons

they're easy to access they’re expensive

26 | Page
 they have fewer requirements than it’s easy to get trapped in a debt cycle
other loans

they don’t check your credit hey target low-income, minority

communities such as young adults

they have access to your bank account

Activity 23 – Borrowing Exam Question

Assess the use of a credit card as a form of borrowing.

Activity 24 - What ways can you save & invest?

Individual Savings Account (ISA)

The main difference between an ISA and any other savings accountis that it offers
tax-free interest payments, so you could get more for your money.

deposit account

A savings account is somewhere you can put your money so it cangrow in value.
The growth of your money, or savings, is calledinterest. Each savings account has
an interest rate, which tells youhow much you will make on your savings over time.

You can apply for a savings account with most banks, buildingsocieties and online
savings providers, all have their own range ofaccounts.

Invetsment

1. premium bonds
2. bonds and gifts
3. pension
4. shares

If you want to make more from your money than the interest rates being offered on
savings accounts then you have the option to invest.

Although there is potential for higher returns there are also higher risks in terms of
losing the money you have invested.

27 | Page
Premium Bonds

Premium Bonds are an investment product issued by National Savings

andInvestment (NS&I). Unlike other investments, where you earn interest or aregular
dividend income, you are entered into a monthly prize draw where you can win
between £25 and £1 million tax free.

Shares

Shares give you part ownershipof a business. This partownership means that you
alsobenefit from the businesses success in the form of payments called dividends.
Thevalue of shares can go up aswell as down and you couldpotentially lose all of
yourinvestment if the business fails.

Activity 25 – Why should you save?

Using the calculator provided workout the following about saving and investing.

Compound interest calculator -

https://www.thecalculatorsite.com/finance/calculators/compoundinterestcalculator.php

How much is a 30% deposit on a £231,855 house?

How long would it take you to save that amount if you saved £200 a month in a
savings account that paid 1.4%

How long would it take to save that amount if you achieved 9.8% return in an
investment?

28 | Page
What would you earn in the investment in the same amount of time it took you to
achieve the deposit in the savings account?

How much money would you have after 25 years if you doubled your contribution
each month from £200 to £400 at 9.8% in an investment?

Write down the amount of money you want to enable you to not have to work (retire)

How many years will it take to reach your goal if you save £250 a month in cash with
0% interest?

How many years will it take to reach your goal if you save £250 a month in a savings
account with 1.4% interest?

How many years will it take to reach your goal if you save £250 a month in an
investment returning 9.8% interest?

Assess the importance of interest rates in achieving your goals and what you need to
do to achieve your financial goals

Activity 26 - Risks and Rewards of Saving Versus Investment

Risk and Rewards Video Link

What would you do with £10,000 cash? (circle)

29 | Page
Spend Save Invest

Based on your answer above, explain your own attitude to saving and investment
(are you high or low risk?).

Savings & investments advantages and disadvantages

Advantages Disadvantages
Saving

Investment

Activity 27 – Which Account is Best?

30 | Page
Georgia has just been given £25,000 from her Grandfather and wants to use this
money for a deposit on a house in roughly 5 years’ time. She is aware that interest
rates are low and has found 4 accounts that she thinks might be suitable to put the
money she has received from her Grandfather. She is wanting to also save an
additional £100 a month towards the deposit.

Account Interest & Charges Features

TT Cash ISA No charges Minimum of £500 to open

1.4% AER return No withdrawal limits

Fixed interest rate

ABC Regular saver No charges No minimum investment amount

0.6% AER return Instant access

Fixed interest rate

DC Fixed Rate Bond No charges Minimum investment £4000

2% AER Return Five year bond

No withdrawals for 5 years

AN Stocks & Shares £50 annual account charge Tracks the top 500 USA companies
ISA
0.5% dealing charge Withdraw investment anytime

Average 8% return (not Minimum monthly investment of £50

guaranteed)

Evaluate which account would be most suited for Georgia in this situation

31 | Page
 Activity 28 - Insurance Types

Car

Home

Life

32 | Page
Travel

Pet

Pet

Health

33 | Page
 Activity 29 – Insurance Higher or Lower?
How much are these celebrities' body parts allegedly insured for?

Celebrity & body part Amount

Rhianna Legs

Miley Cyrus Tongue

Ronaldo Legs

Keith Richards Hands

Daniel Craig Whole Body

Kim Kardashian Bum

Mariah Carey Legs

Outline why these celebrities would insure their body parts for such large amounts.

Real Madrid was the ones that insured Cristiano Ronaldo’s legs. Explain the benefits
& drawbacks of them doing this.

34 | Page
 Activity 30 – Knowledge Check A4
Identify two advantages of using credit cards

Convenience. Using a credit card lets you buy something today but put off the real
cost until payday rolls around – so you don’t have to wait

Spread out the costs. If you need to make a big purchase, a credit card lets you pay
over several monthly instalments. This can help with budgeting and it won’t leave a
huge hole in your finances

Provide two disadvantages of a mortgage

Debt – By taking out a mortgage, you're taking on a commitment to pay back a lot of
money within a certain time period, including interest. Even over 25 years, you'll be
paying a lot more back than you borrowed.

Secured Loan – A mortgage is a secured loan against your property so if you can't
keep up with repayments, you could end up losing your home.

Describe what a bond is

Bonds are investment securities where an investor lends money to a company or a

government for a set period of time, in exchange for regular interest payments.

List the advantages and disadvantages of ISAs

Advantages:

Tax-free withdrawals:

You can withdraw funds from both cash and investment ISAs without incurring a
penalty (unless you have a fixed-rate account). Keep in mind, though, that most

35 | Page
experts would advise against making early withdrawals from a stocks and shares
ISA.

Wide investment choices:

ISAs offer a range of investment choices. If you’re a cautious saver, the cash variety
might be the best option but those with a higher appetite for risk and investment
experience can hold funds, gilts, bonds, stocks and shares, and more.

Transferrable:

ISAs are highly portable. It is possible to switch from one provider to another to take
advantage of superior interest rates and deals.

disadavaneges:

Contribution limits:

Cash ISAs and investment ISAs both have a contribution cap of £20,000 for the
current tax year (2019/20).

No tax relief:

Although your returns will be interest-free, there is no tax relief on ISA contributions.
This is not the case for alternative products, such as SIPPs.

Withdrawn money cannot be replenished:

Due to the annual contributions cap, you can’t put withdrawn money back into an ISA
if this would put you over the limit.

Explain the risks and rewards of investing

risk:

Risk tolerance – how risk makes you feel. If you can’t sleep at night worrying about
your portfolio then it’s likely you’ve taken on more risk than you’re comfortable with.

Risk capacity – how much you can afford to lose. We all go into investing in the hope
of making money over the long-term but, in taking on risk, we accept (to varying
degrees) that our investments might fall in value along the way.

reward:

The efficient market theory may not be true in the sense that companies are always
priced at their value, but it is true in the sense that the price of companies almost
always eventually rises or falls to reflect the true value of the company at some point
in time.

36 | Page
This means that if you purchase a company that is underpriced by the market, you
can just about count on your investment growing in value over time.

Discuss the advantages and disadvantages of travel insurance

advantages:

Annual travel Insurance plan

If you plan to make multiple international trips within a year, instead of buying a
different policy per trip, this is the best option for you.

Travel insurance includes health coverage

Your regular insurance may not cover you because it is out of their network; this is
where travel insurance steps in and have your back and will help cover treatment
costs.

Vehicle rental protection

disadvatges:

Traditional travel insurance may not cover pre-medical conditions

Chronic diseases are considered pre-conditions; these include but are not limited to
Cancer, epilepsy, heart disease or diabetes. Medical Bills escalate quickly

You didn’t end up using your travel insurance

Activity 31 – Learning Outcome A Kahoot Quiz

Attempt the Kahoot quiz to test your knowledge of Learning Outcome A of Unit 3:
Personal and Business Finance. Once you have completed the quiz, answer the
questions below to assess your strengths and areas for development.

What did you score on the Kahoot quiz?

What areas of Learning Outcome A can you identify as your strengths after playing
the quiz?

37 | Page
What areas of Learning Outcome A can you identify as your development areas after
playing the quiz?

How do you plan to develop the areas you have identified to increase your
knowledge and understanding of these topics?

Activity 35 - Personal & Business Finance Outcome A Checklist

Well done, you have now completed the input and set activities for Learning Outcome A, you have
one final task which is to complete the specification checklist below. First, you should explain the
terminology and topic areas in the space provided and then tick the box in the last column when you
feel exam ready with regards to that specific element of the specification.

Unit 3: Personal and Business Finance Checklist

Learning Outcome A: Understand the importance of managing

personal finance.
Topic Your explanation of the terminology Exam ready?
A1 - Functions and Role of Money
Functions of money:
● unit of account
● means of exchange
● store of value
● legal tender

38 | Page
Role of money is affected
and influenced by a
number of factors:
● personal attitudes
● life stages
● culture
● life events
● external influences
● interest rates

Planning expenditure,
common principles to be
considered in planning
personal finances:
● to avoid getting into
debt
● to control costs
● avoid legal action
and/or
repossession
● remain solvent
● maintain a good
credit rating
● avoid bankruptcy
● to manage money
to fund purchases
● generate income
and savings
● set financial targets
and goals
● provide insurance
against loss or
illness
● counter the effects
of inflation.

A2 – Different Ways to Pay

The use of money as a
payment method,
advantages and
disadvantages of:
● cash
● debit card
● credit card
39 | Page
 ● cheque
● electronic transfer
● direct debit
● standing order
● prepaid cards
● contactless cards
● charge cards
● store cards
● mobile banking
● Bankers Automated
Clearing Services
(BACS)
● Clearing House
Automated
Payment System
(CHAPS)

A3 – Current Accounts
Different types, features,
advantages and
disadvantages, different
services offered:
● standard
● packaged, premium
● basic
● student

A4 – Managing Personal Finance

Different types of
borrowing, features,
advantages and
disadvantages:
● overdraft
● personal loans
● hire purchase
● mortgages
● credit cards
● payday loans

Different types of saving

and investment features,
advantages and
disadvantages:

40 | Page
 ● individual savings
accounts (ISAs)
● deposit and savings
accounts
● premium bonds
● bonds and gilts
● shares
● pensions

Risks and rewards of

saving versus investment
Different insurance
products:
● products (car, home
and contents, life
assurance and
insurance, travel,
pet, health)
● different types of
insurance policy for
each product
● features of different
types of insurance
● advantages and
disadvantages of
different types and
features.

41 | Page